Wednesday, 11 March 2015

A
great deal of ink and broadcast time has been spent over the last few months on
the fate of Greece. Mind you, this is a discussion that self-obsessed Greeks
have been having at least since Homer, but it seems to have gained traction
recently. As a very smart, very well plugged-in Greek friend explained at
dinner last night, “A lot of people in Greece love nothing better than the fact
that Greece is on the front pages of the world’s newspapers. While the content
of this news may escape them they consider such coverage proof that Greece is
where it should be – at the centre of the universe.”

My friend, who would describe
himself as a ‘realist’ rather than a ‘cynic’, says the current stand-off
between Greece and the rest of the Eurozone is ‘pure theatre – nothing more.’
Both sides, he says, are playing to domestic audiences. The Greek side uses its
bizarre, confrontational negotiating style to please the home audience. Given
the high approval ratings of this strategy seems to be working. The optics of
the ‘little guy’ standing up to the
power of the ‘big bullies’ effectively obscures the reality that the country is
broke and can barely meet its pension obligations. The heavyweights of the
European Union, for their part, need to show their own domestic audiences that
they are not giving in to the ‘profligate and corrupt’ Greeks. They are well
aware of the rising chorus of resistance to further financial assistance. “Hans
will not give one penny more to those shiftless bums. If Portugal and Ireland
worked their way out of the recession why can’t Greece?” So goes the rhetoric.

The reality is a bit more complex.
My friend anticipates a messy continuation of the current situation. “The
creditors and the Eurozone are well aware that there is no way the current Greek
government, or indeed any foreseeable Greek government, will make the necessary
structural reforms to generate growth and help the country stand on its own
feet. Rigid, antiquated ideology combined with deeply entrenched vested
interests make such reforms virtually impossible. It’s not just Syriza, the
former New Democracy government was never serious about implementing reforms. It
is far more likely that the creditors will keep Greece on a life-support system
by drip feeding it just enough cash to keep it within the Euro zone. Then they
can forget about Greece and move on to more pressing issues. No one wants to
risk a complete break- up of the Euro over a possible Greek exit from the
single currency.”

The only flaw in this argument is
that the so-called ‘Hard Left’ faction in Syriza doesn’t want to play this
game. They would like to drop the constraints of the Euro and return to the
national currency, the drachma. The
language they use while spinning around in their own little galaxy is full of
such stirring phrases as ‘national
sovereignty, dignity, national honour, and freedom from oppression.’ When
reminded that even fellow ‘austerity’
sufferers like Portugal, the Baltic states and Ireland, urge Greece to follow
through on reforms this faction in Greece says this is merely proof that Europe
is not ‘ready’ for a real left-wing
government. You have to remember that Greece is about the only country left
where political terms like ‘Left’ and ‘Right’
are actually used in serious conversation. Most other countries have moved on
to more current challenges rather than re-fight old, stale political doctrine.

Behind the ringing calls for ‘national sovereignty’ with a return to
the drachma lies a far more mundane
reality. Returning to the drachma
means essentially a return to the rotten old system that broke Greece in the
first place. The government could simply print as much money as it wanted,
regardless of its value, and reward its friends with jobs, higher state
hand-outs, even more restrictive labour practices, and protective barriers for
favoured industries – those that are left in Greece that is. The economic
hardships faced by ordinary people would be glossed over as ‘sacrifices necessary for the common good.’
In other words, ‘Stop whinging about the lack
of food on the shelves and glory in the return of Greek pride.’

Remaining in the Euro, with all its
financial constraints and empty Greek treasury, makes this type of political
spending more difficult. But not impossible. “Remember all those €70 billion in
non-performing loans held by Greek banks. Do you think it is a straightforward process
determining whose loans will be forgiven and whose repayment will be demanded,”
my friend asked rhetorically. “I dare say there will be some interesting
discussions between the banks and the government on this issue.”

He may be right in his ‘life support’ analysis, but there is
always the risk that an accident between inexperienced Greek negotiators and
tired, frustrated Eurozone finance officials could push the country into the
cold, hard world outside the Euro.

Monday, 9 March 2015

Are
the wheels starting to come off the Turkish wagon? The political stability and
economic growth that have characterized Turkey since 2002 are beginning to fray
at the edges just before critical general elections in June that could determine
the country’s political direction for years to come.

These elections will go a long way
to determining whether President Tayyip Erdoğan will achieve his goal of
complete control or be hampered by the current constitutional restraints on the
president’s power. He runs the risk of being politically and legally isolated
in his extravagant new palace unless the ruling Justice and Development Party
(AKP) wins enough seats to unilaterally change the constitution the way he
wants. Not content with the current largely ceremonial role of president,
Erdoğan desperately wants a new constitution to enshrine his vision of a
powerful, unchecked, unfettered presidency.

Is Prime Minister Davutoglu's Patience Running Out?

A toxic combination of international
and domestic problems is making this task more difficult than it was just a few
years ago. On top of this a growing sense of ‘Erdoğan fatigue’ seems
to have gripped even some members of his own party. Maybe they’re getting tired
of 12 years of bombast. How much longer is Prime Minister Ahmet Davutoğlu going
to put up with Erdoğan’s constant – and unconstitutional – interference?
Furthermore, many rank-and-file AKP members have shown little enthusiasm for a
change in Turkey’s governing structure.

In order to unilaterally change the
constitution the AKP must increase its members of parliament from the current
316 to 330. This is not an easy task in the best of times, and these are not
the best of times.

The AKP can no longer count on
strong economic growth to support its election campaign. For several years the
party would loudly trumpet the impressive growth figures and strong currency as
confirmation of its ‘brilliant’ policies. Now it is reduced to finding excuses
for below-forecast growth, a rapidly depreciating currency, declining exports,
and stubbornly high unemployment.

The currency has depreciated more than 10%
so far this year, unemployment has risen to 10% and is much higher in the
volatile south eastern region, exports are declining, and president is
hammering the Central Bank to lower interest rates. The cacophony and mixed
signals over Turkey’s economic policies are making investors very nervous. The
prime minister and his top economic aides were in New York last week in an
apparently futile mission to calm these nerves.

This is very difficult to achieve when the
president insists that the theoretically independent Central Bank lower
interest rates in hopes of stimulating the economy and reviving the critical
construction industry that has created so many millionaires during Erdoğan’s
reign. Ali Babacan, the minister in charge of the economy for the last 12
years, understands finance and economics very well. He has done a masterful job
keeping the country on the rails so far, but it remains to be seen just how
long his rational policies will survive the onslaught of Erdoğan and his
comical presidential ‘advisors’.

On top of the economic problems there are
the Kurds. No one knows precisely how many Kurds live in Turkey, but common
assumptions are about 15% of the total population, or roughly 12 million
people. Kurdish guerrillas, the PKK, have been fighting a low-intensity war
against the Turkish state for years. In an effort to end the violence and
integrate the Kurdish population more completely into Turkish society the
government has begun long, drawn-out ‘peace process’. While many applaud this
effort, cynics accuse the government of simply trying to buy off the Kurds to
gain votes in the upcoming election.

Regardless of the ultimate reason, the
Kurds may well hold the key to the June election. Bear with me for a little
background on the convoluted Turkish election system. In order to enter
parliament a political party must gain at least 10% of the total votes cast. In
the past the Kurdish political party did very well in the Kurdish districts of
the south east, but failed to cross the 10% national barrier. In the event that
a party fails to get the required 10% on the national level all that party’s
votes are given to the runner-up in the districts in question. In the vast
majority of cases this runner-up was the AKP candidate.

In order to circumvent this rule Kurdish
candidates previously would enter the elections as independents who only had to win their districts to enter
parliament. This time, however, the young, charismatic leader of the Kurdish
Freedom and Democracy Party (HDP), Selahattin Demirtaş, has decided to risk
everything by entering these elections as a party, subject to the 10%
threshold. If he wins the Kurds will gain a powerful voice in parliament. If he
loses the AKP will pick up several additional members of parliament – perhaps
enough to take them over the 330 needed to change the constitution.

Is Kurdish Leader Selahattin Demirtas The Country's New Hope?

The real question is whether Demirtaş can
broaden the party’s appeal to the non-Kurdish segments of the population. He
has been helped positive images of Kurds in Iraq and Syria defying the
barbarians of ISIS. He may also get some help from what is left of the
disaffected, alienated liberal bloc as well as from those who dislike Erdoğan
so much they will vote for the Kurdish party. “My deepest apologies to my
grandfather who is turning over in his grave, but I will vote for the Kurds
this time. Just to block Erdoğan,” said a typical ‘tactical’ voter.

Turkey is in for a very bumpy ride until
the June elections. Then we shall see if Erdoğan gets his heartfelt wish for an
imperial presidency, or whether is left roaming around his enormous new palace
looking vainly for something to fill his days.

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About Me

I worked as a fund manager and investment banker in Turkey and the Middle East for 25 years. Over the years I have travelled extensively throughout the region and have met many of the leading government officials, business and cultural leaders. I am married to a Greek and now divide my time between London, Turkey, and an island in the Aegean.